Measuring the Cost of Surgical Complications: How Surgeon Outcomes Impact Cost in the BLIS Insurance Model

| March 22, 2012

by Regi Schindler

BLIS, Inc., Portland Oregon

FUNDING: No funding was provided.

DISCLOSURES: The author is the President and CEO of BLIS and is the majority shareholder.
Bariatric Times. 2012;9(3):10–12

INTRODUCTION
With the ever-growing emphasis on outcomes-based reimbursement, the ability to determine complication risk pricing adequacy is becoming an important fundamental challenge. One way to reimburse the healthcare provider on an outcomes basis is to factor in the appropriate cost of a complication event.

The bariatric community is well ahead of the curve on this issue thanks in large part to the leadership of the then American Society for Bariatric Surgery (now ASMBS). In 2005, the ASBS executive committee, led by then president Dr. Neil Hutcher, gave my colleague, Art Richards and me, the go ahead to develop a new type of insurance to cover the risk of post-surgical, complication-related medical expense.

Working closely with the ASBS, the Surgical Review Corporation (SRC), surgical device manufacturers, and several experienced bariatric surgeons, BLIS was able to develop an effective complication insurance pricing model. Even with all of the industry support, it still took 12 months to develop. In December 2006, BLIS covered the complication risk on the first case performed by a bariatric surgeon in Atlanta, Georgia.

While this case became the first of what has now become close to 5,000 cases, it remains an important achievement because up to that point in time the ability to adequately determine the price to cover the cost of post-surgical complications did not exist in any way that could be applied to an entire surgical specialty.

Not coincidently, other surgical specialties have begun to take notice and are evaluating the BLIS model for application to their risk environment.

Recently, BLIS announced premium rate changes for 2012. The annual rate change is an important part of the BLIS evaluation process. This rate change reflects the overall results BLIS has experienced by type of procedure and is then further adjusted based on individual surgeon BLIS outcomes. Results are evaluated based on a “loss ratio” methodology. This ratio is the amount paid in reimbursement of medical claims for complication-related care divided by the amount of premium collected.

Within the bariatric community, risk is typically communicated in terms of frequency. Unfortunately, this is only half of the equation. We also need to look at the cost of care associated with complication events. In risk parlance, cost becomes the “severity” half of the equation. In other words, the true “cost of risk” associated with a complication event can be quantified by calculating the frequency at which the complication event occurs multiplied by the cost of care when it does.

Using this formula, BLIS is able to develop the price or what we think of as the “insurance premium” that surgeons pay. This premium reflects both overall BLIS results as well as an adjustment based on their own BLIS results. Their results are then compared to all other BLIS surgeons for each respective surgical procedure and then adjusted up or down accordingly.

This “continuous process” is data driven with easy-to-understand results that are intended to create a high degree of transparency between BLIS and participating surgeons and hospitals. BLIS is built around the fundamental concept that it is the surgeon, not the patient nor the facility or any other single risk factor, that will have the most immediate and direct impact on the cost associated with surgical complications. In my view, the surgeon is the ultimate risk manager who, when provided with the proper data at the appropriate time, will make any necessary adjustments to their process in order to achieve the desired outcome.

This is a decidedly hands-off approach since BLIS does not prescribe any clinical requirements as a condition of participation in BLISCare or apply any patient underwriting selection criteria. Once approved, BLIS will cover every case reported by the surgeon no matter the patient risk profile. This evaluation process not only impacts their premium it also affects their ongoing ability to participate in BLIS.

Using this approach, we are able to adjust premium rates up and down each year. The bariatric surgical procedure adjustments for 2012 are listed in Table 1.

Once the proper price for each procedure is set we further adjust the premium for each surgeon based on his or her own BLIS experience. A surgeon must first develop his or her own set of BLIS data, which requires one year’s worth experience. If the BLIS surgeon meets this and other criteria, BLIS calculates the loss ratio for the surgeon using the formula in Figure 1.

We are now able to amplify the impact of their BLIS experience by further modifying their BLIS results based on an adjustment comparing their results to all other BLIS surgeons. The Pool Actual Loss Ratio is calculated by dividing the sum of all incurred claims by the sum of all BLIS premium and stated as a percentage rounded to one decimal place. The adjusted loss ratio is then calculated as listed in Figure 2.

With the surgeon’s outcomes now accurately adjusted, we can now calculate their adjustment against the standard rate. Table 2 lists the factors used to obtain a surgeon’s final premium.

One can imagine the effect. For example, consider the sleeve gastrectomy procedure, which has gone up by 10 percent due to the changes noted above for 2012. If the surgeon has a factor of .85, then the true impact in year over year premium is a net reduction of five percent, (+10%-15%). Conversely, if the surgeon has a factor of 1.10 then the net effect is an increase of 20 percent, (+10%+10%).

Ultimately, in a true outcomes-based reimbursement environment, the cost of risk will be built into every surgical procedure. At that point, those surgeons with the highest quality, (best outcomes/loss ratio) will have the lowest cost of risk and therefore be the most competitive from a price standpoint. The BLIS experience adjustment model has proven to be an effective solution, which, will hopefully help pave the way toward a post-reform healthcare marketplace where true outcomes-based reimbursement models are the norm.

Category: Past Articles, Review

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